Tuesday, May 11, 2010

Bull Market Signaled by Oil Stocks at 19 Times Profit

Investors in oil shares are more bullish on the U.S. economy than any time in the last eight years, convinced the biggest decline in equities since the bull market began will prove a buying opportunity.

The 39 energy producers and equipment makers in the Standard & Poor’s 500 Index have traded at an average 19.1 times earnings in 2010, compared with 17.8 for the index. The last times they had higher valuations in 1994, 1999 and 2002, the benchmark gauge for U.S. stocks surged an average of 22 percent in the next year, according to data compiled by Bloomberg. (more)

Fed Hinting on Mortgage-Bond Sales Brings Bernanke Tightening

Words may speak louder than actions for Federal Reserve Chairman Ben S. Bernanke when the time comes to outline plans to raise interest rates and shrink the central bank’s balance sheet.

Altering a pledge to keep short-term borrowing costs low or articulating plans to begin selling the $1.1 trillion in mortgage-backed securities it now holds will amount to a tightening of monetary policy because the announcements will send bond yields higher, raising borrowing costs, said Mitch Stapley, chief fixed-income officer at Fifth Third Asset Management in Grand Rapids, Michigan. (more)

Speculators Increase Bets That Euro Will Collapse

Speculators have increased their bets against the euro to a record of 103,400 contracts adding an additional 48,000 contracts during the past three weeks that drove short positions to outnumber long by four to one.

“The market is extremely one-sided, which increases the odds of a round of short-covering,” Camilla Sutton at Scotia Capital told the Financial Times. “However, developments to date leave us unable to find a reason to buy the euro.”

During the last week, the euro fell 5 percent against the dollar, the single currency’s weakest performance since October 2008. (more)

Economist Tim Madden: The PIIGS Brief: understanding how oligarchs rig, loot our economies

Portugal, Iceland, Ireland, Greece and Spain can sue Canada for damages from global financial crisis
The PIIGS nations, scandalously so-called, of the European Union (EU) appear to have a genuine cause of action and means of remedy against the Canadian state and its commercial court system, secured in part by the aggregate bonds/liability-insurance of members of the various provincial and federal bar associations and law societies in Canada, as well as those of the courts themselves. Provable damages globally appear to be in the range of several trillions of dollars.
The underlying issue is malfeasance of office, gross negligence, reckless disregard and endangerment, and the proximate cause of the global financial crisis, with respect to damages experienced and yet to be experienced by the people and institutions of the PIIGS nations. (more)

Europe Officials Move to Carry Out Aid Package

European officials on Monday took steps to tackle the widening sovereign debt crisis that has destabilized the Continent.

Just hours after leaders agreed to provide nearly $1 trillion as part of a huge rescue package, central banks began buying euro zone government bonds directly on Monday — an unprecedented move to inject cash into the financial system.

Officials were hoping the size of the rescue package — a total of $957 billion — would signal a “shock and awe” commitment to such troubled countries as Greece, Portugal and Spain, in the same vein as the $700 billion package the United States government provided to help its own ailing financial institutions in 2008.

In response, the euro has rallied against the dollar, markets surged and the risk premium on Greek and other government bonds plunged. But analysts pointed out that the package did little to reduce overall debt, and that the uncertainty that has plagued the markets could return if European nations did not take bold steps to reduce their borrowing. (more)

Long Term Unemployed at All Time High

The Solution?

The European Union (EU) and International Monetary Fund (IMF) announced a plan that comes straight out of the United States’ playbook: smother debt flare-ups with truckloads of “free money” while the central bank manipulates rates.

European leaders unveiled a $957 billion plan to save themselves and their currency. Here’s quick and dirty:

  • The EU will pony up $560 billion in new loans and $76 billion in existing deals for the GIIPS nations (as we’ve taken to calling them… no reason to give pigs such a bad rap)
  • The IMF says its ready with $321 billion
  • The European Central Bank (ECB) has abandoned its old stance (and credibility) by launching a program to purchase government and corporate debt.

Chart of the Day